Finance Ministry defrauded of over $215M in 2010 and 2011

The Public Accounts Committee (PAC) yesterday heard that several persons, in 2010 and again in 2011, defrauded the Ministry of Finance of a total of $215.6 million.

Accountant General Jawahar Persaud and Financial Secretary Neermal Rekha, for the second time in two months, led the ministry’s team which sought to answer discrepancies relating to the ministry cited in the Auditor General’s 2010 report.

According to paragraph 90 of the report on the ministry, “during the period under review (2010), a fraud was uncovered at the Sub-Treasury Department, Region No 1, resulting in the loss of cash amounting to $9.393 M.”

The department was reportedly supplied with an impress which held in excess of $14 million for various expenses including payments that were to be made to contractors for various works. This system is utilised because there are no banks in Region 1 to facilitate payment via bank accounts.

Officers in the department were tasked with preparing cheques, distributing them to contractors, and facilitating the cashing of the cheques from the amounts in the impress account.

Persaud said that the lack of supervision allowed certain members of the department to defraud the system and use the funds for themselves. Sources in the Auditor General’s Office told this newspaper that the persons in question would prepare the necessary cheques, but tell contractors that the cheques were not ready when inquiries were made.

Further, the parties involved are said to have cashed the cheques and travelled to Venezuela where they spent the amounts in question. The Auditor General’s Report notes that the matter was being investigated, but Stabroek News understands that the officer who was handling the investigation has since died.

The status of the investigation is therefore in question, and Persaud told the committee that he is awaiting the completion of the police report before methods are undertaken to recoup the amounts.

Paragraph 91 of the report said that another fraud was uncovered in 2011, this time in the Accountant General’s Department Head Office. The report states that “arrears pensions and gratuity payments were made to inactive, deceased and fictitious pensioners.” Eighty fraudulent transactions totalling $206.379M were discovered, which were made payable to sixty-one individuals.

Persaud told the committee that five persons were taken into custody in relation to this matter, which is currently before the court. Some of the cash was also recovered by the police and remains in their possession. Because the matter is currently engaging the court’s attention much information could not be divulged, although Persaud offered to explain how the fraud was pulled off.

He said that a breakdown in internal control mechanisms allowed the parties involved in the fraud to reactivate the profiles of persons who were inactive in the pension database and facilitate payments to these names.

Payments were also made to persons who were deceased, as well as to fictitious names created by the parties. Payments made in these three areas continued unabated without raising any flags because both the primary and secondary signatories for the cheques through which the payments were made worked together, unsupervised. Persaud said that this atmosphere bred collusion by the two parties and enabled them to perpetrate the fraud. Both of the officers are currently before the court.

PAC member Volda Lawrence pointed out that the officers in question, to some extent, defeated the Integrated Financial Management and Accounting System (IFMAS) in order to successfully commit the fraud in question. This is a matter of concern, she explained, especially since IFMAS was implemented to, in part, prevent such occurrences. Lawrence asked why the reactivation of inactive persons in the pension database does not require some form of restricted authorisation.

Persaud though, argued that the problem was not the IFMAS system, but that there was not sufficient internal controls to regulate the activities of the respective officers. He reiterated that having two signatories isolated in the same cage allowed them to collude to commit fraud.

Lawrence then argued that the fraud should have been picked up during the reconciliation of the account out of which the monies were being taken. Auditor General Deodat Sharma at this point informed the committee that the account in question has not been reconciled in years, and added that he recommended to Persaud that the account be closed, after which a new account would be opened and reconciled.

Persaud said he considered the recommendation but did not implement it as he was making efforts to reconcile the existing account. He also told the committee that the power to close the account lies with the Finance Minister.

PAC Chairman Carl Greenidge, nevertheless, insisted that the closure of the existing account and its reconciliation be done urgently. Greenidge said that the integrity of the account, as a result of past breaches, is in question, and suggested that heeding the Auditor General’s advice is the route to be pursued.

It should be noted that no money has been recouped for the second discrepancy either.

Both discrepancies reappear in the Auditor General’s 2011 report, and only the second discrepancy returned in the AG’s 2012 report.


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